How Global Aging Will Transform the Economy, Society, and Geopolitical Order of the 21st Century

Richard JacksonPresident

Global Aging Institute

LONGEVITY 13Taipei

September 21, 2017

The world stands on the threshold of a stunning demographic transformation called global aging.

2

36%

35%

35%

35%

32%

30%

28%

26%

26%

26%

13%

22%

15%

21%

10%

10%

16%

19%

0% 10% 20% 30% 40%

Japan

SouthKorea

Italy

HongKong

Germany

Thailand

China

Canada

France

26%

25%

23%

22%

21%

19%

17%

14%

13%

11%

18%

8%

15%

13%

6%

6%

5%

5%

0% 10% 20% 30% 40%

Chile

UnitedKingdom

Brazil

Unite States

Russia

Mexico

Malaysia

Indonesia

India

2015

2050

Source: World Population Prospects: The 2015 Revision (UN Population Division, 2015)

Elderly (Aged 65 & Over), as a Percent of the Population in 2015 and 2050

Two Forces behind the Aging of the Population: Rising Longevity and Falling Fertility

3

Life Expectancy at Birth Total Fertility Rate

1950-55 1970-75 1990-95 2010-15 1950-55 1970-75 1990-95 2010-15

Developed World 67 72 76 81 2.8 2.1 1.7 1.7

Japan 62 73 79 83 3.0 2.1 1.5 1.4

Western Europe 67 72 76 81 2.5 2.2 1.6 1.6

United States 69 71 76 79 3.3 2.0 2.0 1.9

Emerging East Asia 44 62 70 76 6.0 4.8 2.0 1.5

Eastern Europe 60 69 68 72 2.9 2.2 1.6 1.6

Greater Middle East 42 55 64 70 6.6 6.2 4.6 3.2

Latin America 52 62 69 75 5.9 5.0 3.0 2.2

South Asia 40 52 61 69 5.9 5.5 3.6 2.4

Sub-Saharan Africa 37 45 50 58 6.6 6.8 6.2 5.1

Source: UN Population Division (2015)

Developed World Outlook

A Future of Rising Fiscal Burdens

5

Graying means paying more for pensions, health care, and long-term care for the elderly.

Few countries will be able to raise taxes enough to cover more than a fraction of the age wave’s total cost.

Most countries will have to cut old-age benefits, but the required reductions are large and are likely to meet with resistance from aging electorates.

The alternatives: Let old-age benefits crowd out other government spending and/or run widening budget deficits.

9%11%

14%15%

19%17%

20%18%

20%22%

28%

31% 32%

39%

0%

10%

20%

30%

40%

Canada US UK Japan France Germany Italy

2010 2040

Note: Projections assume that program eligibility ages and benefit levels remain unchanged in the future. Source: The Global Aging Preparedness Index, Second Edition (CSIS, 2013)

“Current Deal” Projection: Total Government Benefits to Persons Aged 60 & Over, as a Percent of GDP, 2010 and 2040

Slowly growing or contracting working-age populations will translate into slower GDP growth.

Japan and some European countries may face a future of “secular stagnation.”

Productivity and living standard growth may also slow as rates of saving and investment decline.

Aging workforces may be less flexible, less mobile, and less entrepreneurial, putting a further drag on growth.

As domestic markets stagnate, the danger of “beggar-thy-neighbor” protectionism will grow.

Average Annual Growth Rate in the Working-Age Population (Aged 20-64), by Decade

1980s 1990s 2000s 2010s 2020s 2030s 2040s

Canada 1.7% 1.1% 1.3% 0.5% -0.1% 0.3% 0.2%

France 1.0% 0.4% 0.6% -0.2% 0.0% 0.0% 0.1%

Germany 1.1% 0.3% -0.5% -0.1% -1.1% -0.8% -0.5%

Italy 0.9% 0.2% 0.2% -0.4% -0.7% -1.2% -0.6%

Japan 0.7% 0.4% -0.4% -1.0% -0.7% -1.2% -1.1%

UK 0.7% 0.4% 0.7% 0.3% 0.0% 0.1% 0.2%

US 1.3% 1.2% 1.1% 0.4% 0.1% 0.3% 0.4%

Source: UN Population Division (2015)

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A Future of Slower Economic Growth

7

A Future of Relative Economic Declineand Diminished Geopolitical Stature

29%22% 23%

31%

23% 17%

40%

55%60%

0%

20%

40%

60%

80%

100%

2016 2030 2050

United States Other Developed Emerging Markets

2016 2050

Canada 2% 1%

France 4% 2%

Germany 5% 3%

Italy 3% 1%

Japan 7% 3%

UK 4% 3%

United States 29% 23%

GDP by Country and Country Group as a Percent of World GDP, in PPP Dollars, 2016, 2030, and 2050*

Note: “World GDP” refers to the GDP of 32 of the world’s largest economies, including the ten largest developed economies (the G-7 plus Australia, the Netherlands, and Spain) and 22 large emerging markets. Source: The Long View: How Will the Global Economic Order Change by 2050? (PWC, 2017)

Shades of Gray

The degree of population aging varies tremendously across the developed world, from moderate in the United States to severe in parts of Europe and Japan.

Yet to one extent or another, all developed countries face a future of rising fiscal burdens, slower economic growth, and diminished geopolitical stature.

8

Source: UN Population Division (2015)

38

43

47

42

48

53

30

40

50

60

US Western Europe Japan

2015 2050

Median Age, 2015 and 2050

10%

-14%

-29%-40%

-30%

-20%

-10%

0%

10%

20%

US Western Europe Japan

Cumulative Percentage Change in the Working-Age Population (Aged 20-64), 2015 to 2050

15%19%

26%22%

30%

36%

0%

10%

20%

30%

40%

US Western Europe Japan

2015 2050

Elderly (Aged 65 & over), as a Percentof the Population, 2015 and 2050

Developing World Outlook

The Promise of the “Demographic Dividend”

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Working-Age Population (Aged 20-64), as a Percent of the Total Population, 1975–2050

1975 1990 2015 2030 2050

Emerging East Asia 46% 55% 67% 62% 54%

Eastern Europe 58% 59% 64% 58% 55%

Greater Middle East 43% 44% 54% 56% 57%

Latin America 44% 49% 58% 59% 57%

South Asia 45% 48% 57% 60% 60%

Sub-Saharan Africa 42% 41% 43% 47% 52%

Source: UN Population Division (2015)

Median Age, 1975–2050

1975 1990 2015 2030 2050

Emerging East Asia 20 25 37 43 50

Eastern Europe 31 34 40 44 43

Greater Middle East 18 19 25 29 33

Latin America 19 22 29 35 41

South Asia 19 21 27 32 38

Sub-Saharan Africa 18 17 18 20 24

Source: UN Population Division (2015)

As the developing world moves through the “demographic transition,” the slowdown in population growth and upward shift in age structure may push it toward greater peace and prosperity.

The social and political argument: Fading youth bulges and rising median ages will foster stability.

The economic argument: Declining dependency burdens and growing working-age populations create a “demographic dividend” and open up a window of opportunity for rapid development.

In some regions of the developing world, including most of sub-Saharan Africa and parts of the Greater Middle East, the demographic transition has stalled in its early stages.

In other regions, the very speed of the transition is potentially destabilizing. China is aging prematurely, while Russia is on the cusp of a steep population decline.

Caveat One: Averages Can Be Deceiving

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0%

5%

10%

15%

20%

25%

30%

1970 1980 1990 2000 2010 2020 2030 2040 2050

China

US

Elderly (Aged 65 & Over), as a Percent of the Population, 1970-2050

Source: UN Population Division (2015)

32%35% 34%

23%

35% 35%

21%

31% 33%

0%

10%

20%

30%

40%

Developing-WorldAverage

High-Fertility GreaterMiddle East*

Sub-Saharan Africa

1980 2015 2030

Youth Bulge (15-24) as a Percent of the Adult Population (15 & Over), 1980, 2015, and 2050

*Includes Afghanistan, Iraq, Mauritania, Palestine, Sudan, Somalia, and Yemen

-3%

-10%

-16%

-23%-25%

-20%

-15%

-10%

-5%

0%2015-2030 2015-2050

Total Population

Working-Age (20-64)

Percentage Change in the Population of the Russian Federation, 2015-2050

The demographic dividend may open up a window of opportunity for development, but it does not guarantee economic success.

Leveraging the dividend requires sound macro policies, good governance, and massive investments in infrastructure and, above all, human capital.

Although economic growth has accelerated in many emerging markets over the past fifteen years, none are on track to replicate East Asia’s economic performance.

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Caveat Two:Missed Economic Opportunities

6.9%

3.1%

-0.5%-0.9%

-0.1%

1.0%

7.7%

4.7%

3.5%

2.5% 2.2%1.7%

-2%

0%

2%

4%

6%

8%

10%

EmergingEast Asia

South Asia EasternEurope

Sub-SaharanAfrica

GreaterMiddle East

LatinAmerica

1975-2000

2000-2015

Source: World Development Indicators Database; Maddison Project Database; and UN Population Division (2015)

Average Annual Growth Rate in Real GDP Per Capita in PPP Dollars, by Period, 1975-2015

Societies undergo tremendous stresses as they move from the traditional to the modern. When plotted against development, most of these stresses describe an inverted-U, meaning that they become most dangerous midway through the demographic transitionand the development process.

These stresses include:

➢ Contact with the global marketplace and culture

➢ Urbanization➢ Environmental degradation➢ Growing income inequality➢ Growing ethnic competition➢ Religious extremism

Leve

l of

Stre

ss &

Ris

k o

f V

iole

nce

Stage of Demographic Transition & Development

The "Inverted U" Relationship

Caveat Three:Journeys Can Be More Dangerous Than Destinations

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Source: Author’s illustration.

Concluding Thoughts

Concluding Thoughts

15

10%

15%

20%

25%

30%

35%

1950 1970 1990 2010 2030 2050

Japan

Italy

Germany

UK

Canada

France

US

Source: Author’s calculations based on UN Population Division (2007) and Human Mortality Database (UC Berkeley and Max Planck Institute for Demographic Research)

Share of the Population with Less than Twenty Years of Life Remaining, by Country, 1950-2050

Global aging is as close as social science comes to a certain prediction about the future.

From rising fiscal burdens to slowing economic growth, many of the consequences are also highly certain.

Yet there are also critical questions about global aging whose answers remain unclear:

Will health spans rise along with life spans?

Is global aging pushing the world toward a future of capital surpluses or shortages?

Will aging societies become more risk averse, have shorter time horizons, and be less willing to undertake investments in future-oriented agendas?

Global aging is a global problem requiring global solutions. The greatest danger is that aging societies may retreat from globalization.

GLOBAL AGING INSTITUTE

www. GlobalAgingInstitute.org